Vanuatu's government has signed an agreement for a US$3.5 million bailout of the struggling Air Vanuatu.

The Daily Post reports the finance minister, Gaetan Pikioune, signed the agreement on Sunday, which will be paid in two installments and have to be repaid within five years.

It will be used to pay off the airline's debts, partly finance a reform plan, reduce its bank overdraft facilities, finalise the delivery of a new aircraft, and source spare parts for its domestic ATR72 planes.

The second installment will only be paid when the government is satisfied with the airline's reform plans.

This is not the first time the national airline has sought a government bailout, and it has struggled with a downturn in visitors associated with Cyclone Pam and the state of the runway at Port Vila airport.

With a new board recently announced, the airline says it embarking on a major restructuring.